Berkshire Hathaway CEO Warren Buffett has blasted Wall Street for encouraging speculative behavior in the stock market, turning it into a “gaming parlor”.
Buffett, 91, spoke at length Saturday at his annual meeting of shareholders about one of his favorite targets of criticism: investment banks and brokerage houses.
“Wall Street makes money, one way or another, by picking up the crumbs that fall off the table of capitalism,” Buffett said. “They don’t make money unless people do things, and they get a cut of it. They make a lot more money when people play than when they invest.”
Buffett lamented that big US corporations have “become poker chips” for market speculation. He cited the growing use of call options, saying brokers are making more money from these bets than from just investing.
Still, the situation may lead to market upheavals that give Berkshire Hathaway an opportunity, he said. Buffett said Berkshire spent an incredible $41 billion on stocks in the first quarter, freeing up his company’s cash hoard after an extended lull. Some $7 billion of that sum was used to buy back shares of Occidental, bringing its stake to more than 14% of the oil producer’s shares.
“That’s why the markets do crazy things, and sometimes Berkshire has a chance to do something,” Buffett said.
“It’s almost a speculative mania,” added Charlie Munger, 98, Buffett’s longtime partner and vice chairman of Berkshire Hathaway.
“We have people who know nothing about stocks advised by stock brokers who know even less,” Munger said. “It’s an unbelievable and crazy situation. I don’t think any wise country wants this outcome. Why would you want your country’s stocks trading on a casino?”
Retail traders have flooded the stock market during the pandemic, driving stock prices to record highs. Last year, the frenzy was further fueled by meme-inspired exchanges on Reddit message boards. But the stock market has turned this year, putting many of these new home traders in the red. The Nasdaq Composite, which holds many of the names favored by small traders, is in a bear market, down more than 23% from its high after an April crash.
Warren Buffett has long mocked investment bankers and their institutions, saying they encourage mergers and spinoffs to reap fees, rather than improve companies.
He typically shuns investment bankers for his acquisitions, calling them expensive “money mixers.” Buffett’s $848.02 per share bid for insurer Alleghany would exclude Goldman’s advisory fees.
Earlier in the session, he noted that Berkshire would always be cash-rich and, when needed, would be “better than the banks” at extending lines of credit to businesses. A bystander made an inaudible comment as he spoke.
“Was it a banker who was shouting? Buffet joked.